SEBI Steps Up Vigil against Insider Trading
SEBI has recently passed several orders against insider trading cases highlighting its deep roots in functioning of corporate India. The market regulator also pointed out that many market participants, namely, promoters, senior company officials, investment bankers and some high profile investors have access to price sensitive information and they use such information to trade in the stock markets.
As per the SEBI (Prohibition of Insider Trading) Regulations, 2015, any person who is in possession of Unpublished Price Sensitive Information (UPSI) is regarded as an insider. Examples of Price Sensitive Information are financial statements, dividends, any merger and acquisition proposal etc. When such information is not in the public domain, it is termed as unpublished price sensitive information. Any disclosure of UPSI by the insider and subsequent trading of the company’s shares on the basis of such information is considered illegal as per the regulatory provisions. Here is a brief description of few of the prominent cases where SEBI has cracked down on insider trading:
- Divi’s laboratories – SEBI has imposed a penalty of Rs. 96 lakh on the Chief Financial Officer of Divi’s Laboratories, his close associates, including his son for indulging in insider trading in 2017. They traded in the shares of Divi’s Laboratories while in possession of unpublished price sensitive information.
- United Spirits/Diageo – SEBI imposed a fine of Rs. 3 crore on three relatives of Diageo’s global business development manager, Nishant Gupte. They indulged in insider trading on the basis of the information shared by Nishant Gupte. He was alleged to be in possession UPSI relating to the open offer for acquisition of shares of United Spirits by Diageo.
- Aditya Omprakash Gaggar – SEBI levied a fine of Rs. 15 lakh on Aditya Omprakash Gaggar for circulating the unpublished financial results of Bata India Ltd. through WhatsApp messages.
- Dynamatic Technologies - The market regulator SEBI , through an order on June 15, 2020, had directed the Managing Director and CEO of Dynamatic Technologies to deposit a sum of Rs 3.83 crore (including interest) in an escrow account towards notional loss allegedly avoided by him by using unpublished price sensitive information. It had also directed that his bank and demat accounts will remain frozen till the time the amount is not deposited. It was alleged that he sold 51,000 shares of the company in October, 2016 having inside knowledge of the price sensitive information about the unaudited financial results of the quarter ended September 30, 2016. By doing so, he allegedly made a notional gain or averted a notional loss. After the SEBI order, he approached the Securities Appellate Tribunal (SAT) which told SEBI to pass a fresh order within six months.
- CRISIL/Morgan Stanley – SEBI passed an order against Morgan Stanley executive Utsav Pathak of insider trading in the shares of rating agency CRISIL. Securities Appellate Tribunal (SAT) also upheld the order of SEBI. During the course of investigation, SEBI found that the voluntary Open Offer for the acquisition of shares of CRISIL by the McGraw Hill Asian Holdings was managed by Morgan Stanley India Private Limited as the Merchant Banker to the offer. And, Utsav Pathak, who was working as an executive was aware of this unpublished price sensitive information, and used it to deal in the shares of CRISIL Ltd. After the SEBI order, he paid an amount of Rs. 2 crore and settled the matter.
- Shruti Vora – The market regulator levied a fine of Rs. 15 lakh on Shruti Vora who works with Antique Stock Broking Ltd. as it found her guilty of releasing unpublished price sensitive information related to financial results of Bata India Ltd through WhatsApp messages prior to official announcement by the company.
- Aptech/Rakesh Jhunjhunwala – SEBI has issued a show cause notice to Rakesh Jhunjhunwala for insider trading in the shares of Aptech Ltd., an IT education and training firm owned by him and his family. Aptech is the only company in which he holds management control.
- Shruti Vora and Parthiv Dalal - Market regulator SEBI has penalised Shruti Vora after finding her guilty of releasing unpublished price sensitive information related to financial results of Wipro, Asian Paints and Mindtree through WhatsApp messages prior to official announcement by the company. This is in addition to the penalty she got in case of Bata India Ltd. Further, it penalised Parthiv Dalal for similar action in case of Wipro Ltd.’s earnings. In separate orders, SEBI levied a total fine of Rs 45 lakh on Vora for her involvement in the three cases as mentioned above, while a penalty of Rs 15 lakh has been imposed on Dalal for Wipro.
